Euroland will pay for this monetary madness…(Don’t Forget The USSA!)

When something looks dangerous, it generally is. And few things look quite so high-wire right now as the European Central Bank’s efforts to hold the euro together by flooding the banking system with free money.

This week, the ECB injected a further 529.5 billion euros via “long-term refinancing operations”, or LTROs, bringing the tally to more than 1 trillion euros.

When Mario Draghi, the new ECB president, embarked on the programme shortly before Christmas, it was hailed as a masterstroke which had saved the eurozone from financial and economic calamity. Even the Jeremiahs of Germany’s Bundesbank, proud keepers of the sacred flame of monetary conservatism, were stunned into grudging acquiescence by the evident seriousness of the crisis. But now the doubts are beginning to set in, and with good reason.
The measures adopted are so extreme that it is no longer possible to know where they might lead, or what their eventual consequences might be. There is no precedent or road map for this kind of thing. All we do know is that they fail to provide any kind of lasting solution to the single currency’s underlying difficulties, which are still largely unrecognised and unaddressed. If Draghi’s intention was to buy time, it’s not being well used.

It might be argued, of course, that a sticking-plaster solution is better than no solution. And isn’t the ECB only following – if belatedly – the trail blazed by the Bank of England and the US Federal Reserve with their quantitative easing? If our monetary activism can be justified, it’s hard to argue that the ECB’s cannot.